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These converging trends could lead to a move back toward the historical norm--working until you drop--and away from the experiment of the past few decades, the only time in history when healthy people have stopped working for the last 20 or 30 years of their lives. Working longer may seem a natural progression in an era when people are living and staying healthy longer. Indeed, even when the stock market was booming, more and more older Americans were choosing to work, often part time and in dream jobs like business consulting or running a small art gallery, just to stay active and engaged. But that's very different from the prospect that faces many older workers today: being forced to work more hours each week for more years than they want at jobs they don't like.
It's hard to believe that just two years ago, all the talk was of leaving the rat race early. Cocky young Internet entrepreneurs were poster children for that movement. Working to 65 was for losers. After all, you can get early, albeit reduced Social Security benefits starting at 62. By the late '90s some 73% of retirees had opted to take early benefits, compared with just 18% in 1960. You can begin to take penalty-free IRA and 401(k) distributions at age 59 1/2--and even earlier under certain circumstances. Many companies start offering retiree health benefits at 55. And when the stock market was growing 20% a year (remember?), the math was simple. All those over 35 had their fingers on a calculator. These days, sadly, the math isn't much fun. In many households no one can stand even to open the 401(k) and brokerage statements because of the angst they inspire.
Can you ever retire? Of course. Just as good times don't last forever, neither do bear markets. The economy is now recovering smartly. Your savings will start to grow again soon. But the game has changed.
To understand how, take yourself back to 1999. Let's say you were 37 then and had saved $100,000 for retirement, with a goal of $1 million--which would provide you with an annual retirement income of, conservatively, $70,000. You could have figured on retiring in 2011 at the age of 49 simply by contributing the maximum to your 401(k) and socking everything into stock funds growing 18% a year. Today that $100,000 in stocks has probably shrunk to $56,000, or considerably less if you were heavy in tech. And you're two years older. You have lost more than money; you have lost time. And the only thing compounding at 18% a year these days is the frequency of your anxiety attacks. At this point, 7% is a more reasonable expected annual rate of return to plug into retirement calculations. Why so low? You're probably--and rightly--more diversified, including some fixed-income holdings (all stock all the time is soooo out of fashion). Diversification among stocks or stock funds, bonds and cash and their equivalents lowers your rate of return but also reduces the risk of losing money.